Our business clients often ask us what the difference is between general liability and professional liability insurance.
This is an important question because each policy provides different coverage and you need to know which one—if not both—is applicable to your business.
By understanding the differences, you can ensure you are managing the appropriate risks for your situation.
To start, liability insurance is an umbrella term. It refers to a wide array of coverages whose purpose is to offer protection against specified perils. These are typically liabilities imposed upon the insured by lawsuits and third-party claims. Liability insurance protects the insured if and when they are required to pay damages that fall within the coverage of the policy. Each liability insurance policy offers protection against specified injuries and damage to specified property.
General liability insurance protects a business or corporation from third-party claims related to physical injuries and property damage. It provides coverage for incidents that occur specifically at the organization’s physical location during regular business hours. It may include premises coverage, which provides coverage for bodily injury and property damage claims related to a finished product or service provided at another location.
Bodily injuries to third parties are the most common general liability claim. For example, if a customer gets injured on your property by falling on an uneven floor during regular business hours, you would be covered under your general liability insurance policy. The policy also covers medical payments, meaning you will not have to pay for any of the injured customer’s medical bills.
Property damage under a general liability insurance policy can apply to your own property or to the claimant’s. If your business property is damaged by a third party during regular business hours, it will be covered under your general liability policy. The same applies if a third party’s property, such as a vehicle, is damaged on your property during, and as a result of, regular business operations. If you have premises coverage, your policy will also cover damage made to the property of a third party outside of your business location as a result of regular business operations. For example, if your employee damages a customer’s home while installing a product there, your general liability insurance would cover the cost of the repairs.
Reputational harm is also covered under a general liability insurance policy. For example, if someone decides to sue you for slander, libel, or privacy violations, you can make a claim for the damages under your general liability policy. Additionally, this policy covers advertising errors, such as a lawsuit related to copyright infringement in an advertisement for your business.
A claim for general liability insurance could be filed against a policy that was in effect several years prior if the incident occurred during the prior policy period. Policies are typically written on an “occurrence” basis, which means that the policy responds when a third party suffers bodily injury or property damage, no matter when the claim is actually filed.
Professional liability insurance is a more personal category of liability insurance. It typically applies to professionals such as doctors and lawyers. Professional liability, also known as errors and omissions (E&O) insurance, covers the risk of getting sued for damages by your clients as a result of your work. It covers risks such as bad advice, misrepresenting results and outcomes, negligence, and malpractice in delivering your services. It protects professional advisors and service-providing individuals from bearing the full legal cost of defending against claims and settlement.
Some situations that can lead to a professional liability lawsuit include misunderstandings, clerical errors, failures to disclose, and missed deadlines. An example would be if a CPA made a clerical mistake on a tax return and, upon an audit, the CPA’s client was financially penalized. Another example might be if a technology professional made a mistake that left a business vulnerable to cybercriminals, resulting in a breach.
Unlike general liability policies, professional liability insurance policies are typically written on a “claims-made” basis. This means that a claim must be made during the policy term or within a specified period following the policy term. In other words, the incident must occur during the policy period and the claim must be reported within the policy period.
A professional liability insurance policy is most often used to pay for lawyer fees because, whether you are innocent or guilty, you still need to pay your attorney. It is also used for other legal costs, such as administrative expenses, court filings, settlement costs, expert witness testimonies, and court judgements.
You can keep your risk to a minimum by using contracts, getting everything in writing, and being fully transparent with your clients.
General liability insurance and professional liability insurance each cover different kinds of common business risks. They both offer a baseline amount of financial protection in the event of a mishap that relates to your business, and both provide investigation and legal defenses, pay out damages on your behalf, and offer peace of mind for business owners.
The main difference between general liability and professional liability is that they each cover different risk exposures. Only general liability insurance can spare your business from lawsuits when a visitor is injured on your commercial property while professional liability insurance shields you from the high costs of alleged professional mistakes that cause financial losses to a third party.
Whether you are a business owner or a professional, your friends at GIS are here to write a liability policy that works for you. Connect with us so we can get you covered and give you peace of mind when the unexpected comes to call.
Nicole was raised in Crown Point, IN graduating from Crown Point High School and earning a Bachelor’s degree from Purdue University Northwest’s Hospitality and Tourism Management Program. She now resides in Hobart with her husband, Adam, and their pets, Finn and Louie. Prior to joining GIS, Nicole has gained a background in hospitality, banking, as well as in the non-profit sector as a Community Development Manager. She is a member of the Hobart Chamber of Commerce, Hobart Kiwanis, Full Circle Young Professionals, Purdue Northwest Alumni Association, and Secretary of the Merrillville Rotary Club. In her free time Nicole enjoys the beach, day trips to Michigan with her husband and volunteering.